Spring! Corn is planted, beans are close, and we hope the freezing weather is gone and doesn't impact that wheat crop. In the interest of beginning things anew, we are starting Market Words of the Week. Each week, we will define, and provide some context around, grain market terminology. Our definitions come from our market expert, Deanna Lahre. If I am writing the post, I will provide my own unique perspective on the term. Shall we begin at the beginning? Futures.
A futures contractis a term used to designate any or all contracts covering the sale of commodities (including financial instruments and cash representing indexes) for future delivery made on an exchange and subject to its rules.
The "future" is another term for the timing of the contract. There can be many futures contracts available on the board.* For example, if you are listening to the daily market reports, you might hear them report the nearby.** For corn, this is currently July 2016. So, you could take a position to sell some number of contracts at the July 2016 price, currently around 393.
There are several months, and years, on the board at any given time. The months listed vary depending on the crop. For corn, you would see March, May, July, September, and December. For soybeans, January, March, May, July, August, September, and November. Wheat is the same as corn, March, May, July, September, and December.
The board also lists those monthly contracts for several years out at any given time - you can currently put on a futures position in December 2019 corn. As long as the exchange lists a buyer (open contracts, also known as open interest), a futures contract can be made.
With our Hedge My Farm tool for farmers, we use futures to help balance your price exposure risk. You take a look at our mathematical model output and talk with your broker or other trusted adviser to make a market decision. Want to find out more? Email us at email@example.com.
*board, briefly: listing of open contracts at the exchange
**nearby, briefly: closest futures month to the current date
This article from University of Kentucky Extension gives an in-depth look into the grain futures markets.